Posted July 7th, 2010 by admin
For many taxpayers, 2010 might be their last chance to pay a “bargain” 15% federal tax rate for long-term capital gains. Individuals who have appreciated assets should consider selling them this year and paying the tax for 2010. Since 2010 is more than half over, it’s time to think about year-end tax planning. Some transactions take months to execute, so the time to start taking action may be now.
The Bush tax cuts enacted in 2001 are expiring after 2010. If Congress does nothing, the maximum federal long-term capital gains rate will increase from 15% to 20%. That’s a 33 1/3% increase! Some low income taxpayers are actually currently eligible for a 0% rate for long-term capital gains.
When planning to take long-term capital gains during 2010, be aware that the “wash sale” rules disallowing losses when the same or similar property is sold and repurchased during the period 30 days before and 30 days after selling an asset does not apply to gains. In essence, you can elect to report gains for your property by structuring a sale followed by a repurchase. There is still a possibility the IRS could challenge such a transaction on a substance versus form argument, especially for transactions with related parties.
When evaluating whether to sell and repurchase property, consider whether selling expenses could exceed the tax benefit from the transaction.
President Obama has proposed extending the Bush tax cuts for married persons filing joint income tax returns who have adjusted gross income of less than $250,000 and for single persons with adjusted gross income of less than $200,000. We probably won’t know if Congress will enact this proposal until late 2011. We have seen that Congress is finding it difficult to pass much tax legislation this year, including extension of the estate tax and many tax extenders. It may be wise to take defensive action.
A 3.8% Medicare tax on investment income of high-income taxpayers, including long-term capital gains, has already been enacted effective in 2013.
When the stock market and real estate markets are weak, it seems strange to talk about tax planning for long-term capital gains. The value changes for items are uneven. Some taxpayers could still be holding substantially appreciated property, like Google stock that they bought shortly after the company went public, or a rental home they bought thirty years ago.
Always consult with a tax advisor before making a major tax planning decision.
IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this communication was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.
Tags: 2010, capital, gain, planning, Tax matters
Posted July 6th, 2010 by admin
This week’s interview on Financial Insider Weekly to be broadcast in San Jose and Campbell this Wednesday, July 7, is with attorney and CPA Scott Haislet. We talk about what you should know about tax deferred (1031) exchanges The interview will be broadcast at 4:30 p.m. Pacific Time on Comcast Channel 15 in San Jose and Campbell, and will be broadcast as streaming video at the same time at www.creatvsj.org.
Remember you can find past episodes of Financial Insider Weekly at www.financialinsiderweekly.com.
Tags: 1031, estate, exchange, real, Tax matters
Posted June 28th, 2010 by admin
This week’s interview on Financial Insider Weekly to be broadcast in San Jose and Campbell this Wednesday, June 30, is with attorney Michael Malter. We talk about what you should know about bankruptcy for individuals. You will especially want to watch this if you have a short sale or foreclosure in process. The interview will be broadcast at 4:30 p.m. Pacific Time on Comcast Channel 15 in San Jose and Campbell, and will be broadcast as streaming video at the same time at www.creatvsj.org.
Remember you can find past episodes of Financial Insider Weekly at www.financialinsiderweekly.com.
Tags: bankrupt, foreclosure, sale, short
Posted June 21st, 2010 by admin
This week’s interview on Financial Insider Weekly to be broadcast in San Jose and Campbell this Wednesday, June 23, is with attorney Michael Desmarais. We talk about estate planning for the second marriage. The interview will be broadcast at 4:30 p.m. Pacific Time on Comcast Channel 15 in San Jose and Campbell, and will be broadcast as streaming video at the same time at www.creatvsj.org.
Remember you can find past episodes of Financial Insider Weekly at www.financialinsiderweekly.com.
Tags: estate, marriage, planning, second
Posted June 15th, 2010 by admin
The broadcast time in Marin County for Financial Insider Weekly has changed from 7 p.m. to 9:30 p.m. Thursday nights, effective June 17, 2010. The show is broadcast by Community Media Center of Marin on Comcast Channel 26 and ATT U-Verse Channel 99. YouTube links for past episodes are listed at www.financialinsiderweekly.com.
Tags: financial, insider, marin, weekly
Posted June 14th, 2010 by admin
The Internal Revenue Service has issued Private Letter Ruling 201021048 with guidance for California registered domestic partners (RDPs).
According to the ruling, California community property laws for RDPs were conformed to be the same as for married couples, effective January 1, 2007.
Therefore, although RDPs can’t file joint federal income tax returns,
1 – Wages and other earned income earned after the partners become RDPs should be divided in half and reported on each partner’s federal income tax return (unless there was an agreement between the partners before earning the income that it would not be community property).
2 – Withholding with respect to community property earned income should be divided in half and reported on each partner’s federal income tax return.
3 – Since the earnings are community property, each partner has a vested interest in his or her share, and there is no transfer or gift from one partner to the other of their vested share for federal gift tax purposes.
Most Califonria tax advisors believed these were the correct conclusions before the IRS issued this ruling, but it is a relief to see more clear guidance. Previous guidance in Chief Counsel Advice 200608038 did not support this position, but the Chief Counsel’s office has issued new advice 201021050, retroactively effective to January 1, 2007, that does support the new position. See blog post http://michaelgraycpa.com/2010/06/11/irs-says-california-rdps-should-split-wages-on-tax-returns/.
Tags: domestic, federal, gay, partner, RDP, registered, Tax matters
Posted June 14th, 2010 by admin
This week’s interview on Financial Insider Weekly to be broadcast in San Jose and Campbell this Wednesday, June 16, is with Craig Martin, CFP of The Family Wealth Consulting Group. We talk about real estate as an investment alternative for a risk-managed portfolio. The interview will be broadcast at 4:30 p.m. Pacific Time on Comcast Channel 15 in San Jose and Campbell, and will be broadcast as streaming video at the same time at www.creatvsj.org.
Remember you can find past episodes of Financial Insider Weekly at www.financialinsiderweekly.com.
Tags: estate, investment, portfolio, real
Posted June 11th, 2010 by admin
The IRS Chief Counsel’s Office has issued updated guidance, Chief Counsel Advice (CCA) 201021050, for reporting earned income of California registered domestic partners (RDPs).
According to the ruling, the federal government recognizes community property rights of California registered domestic partners effective January 1, 2007. Therefore, one-half of the earned income of a partner should be reported on each partner’s federal income tax return, unless the RDPs execute an agreement opting out of community property treatment.
Registered domestic partners still can’t file joint federal income tax returns.
This new reporting requirement should be followed for income tax returns filed after the ruling was issued on May 5, 2010. Taxpayers may optionally amend income tax returns filed for tax years 2007 through 2009 to follow the new ruling.
This ruling changes previous advice issued in CCA 200608038 on February 24, 2006. In the earlier ruling, the IRS said each RDP should report his or her own earned income, disregarding community property rights. The reason is on September 26, 2006, California enacted Senate Bill 1827, which repealed language in the California Domestic Partner Rights and Responsibilities Act of 2003 that said “earned income may not be treated as community property for state income tax purposes.”
This is a tremendous validation of community property rights for California same sex couples and other registered domestic partners, and could result in significant tax savings for some of them. On the other hand, the ruling adds an element of complexity for tax return preparers and the IRS because income reported on an information return, such as a Form W-2, under one person’s social security number will be reported on two income tax returns.
Tags: couple, domestic, gay, income, partners, RDP, registered, same, sex, Tax matters
Posted June 9th, 2010 by admin
The IRS has issued a revenue procedure to help taxpayers left “holding the bag” when exchange intermediaries defaulted on completing exchange transactions relating to a bankruptcy of the intermediary.
In a typical deferred exchange, the proceeds from the sale of property are deposited with a qualified intermediary, which later uses the funds to pay for a replacement property.
Recently some high-profile intermediaries filed for bankruptcy and failed to pay the funds to complete exchange transactions. This is potentially a taxable event, for which the exchanging taxpayer could owe a tax and not have cash to pay it. For example, Edward Okun owned 1031 Tax Group and 16 other exchange intermediary affiliates that owed more than $150 million of exchange funds and filed for bankruptcy. LandAmerica was another exchange intermediary that owed more than $419 million of exchange funds when it filed for bankruptcy.
According to Revenue Procedure 2010-14, the taxpayer will generally report the failed exchange as an installment sale. Income is only reported as cash is received, so cash not yet received because the bankruptcy is in process won’t be taxable until it is paid as a bankruptcy settlement.
The amount of debt for the sold property that was paid off using the sale proceeds and is in excess of the tax basis (cost for determining tax gain or loss) is counted as cash received in the year the debt was paid (usually the year of the sale). For example, if a $60,000 mortgage is paid off from the sales proceeds of land that cost $40,000, $20,000 would be treated as cash received in the year of sale.
If the bankruptcy is completed in the year of sale, the sales price and contract price are reduced for any amounts that won’t be paid. For example, if a property is sold in 2010 for $100,000 cash, deposited with a qualified intermediary and it’s determined by December 31, 2010 that $40,000 is cancelled in bankruptcy, the sales price and contract price will be adjusted to $60,000.
Depreciation recapture income is included in income to the extent of gain recognized in a taxable year based on cash received, and such income is taxable before other (capital) gains.
Unstated interest can still be imputed for a failed exchange, but the taxpayer is treated as selling the relinquished property on a safe harbor date, which is the date the confirmation of the bankruptcy plan or other court order that resolves the taxpayer’s claim against the qualified intermediary. If the payment is made within six months after that date, no interest is required to be imputed.
In some cases, taxpayers may be entitled to claim a loss when the bankruptcy is done and the amount of loss can be determined. The loss would be the total amount of cash received (including cash used to pay off mortgages for the sold property) less the tax basis of the property and any gain for which income taxes were paid.
Although the Revenue Procedure is generally effective for taxpayers whose like-kind exchanges fail due to a qualified intermediary default occurring after January 1, 2009, taxpayers in that situation may still use the Revenue Procedure to file an original or amended income tax return for previous open years.
(Revenue Procedure 2010-14, March 8, 2010.)
IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this website was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.
Tags: 1031, bankruptcy, deferred, exchange, failed
Posted June 7th, 2010 by admin
This week’s interview on Financial Insider Weekly to be broadcast in San Jose and Campbell this Wednesday, June 9, is with Hilary Martin, CFP of The Family Wealth Consulting Group. We discuss whether you should convert your IRA or taxable retirement account to a Roth account in 2010. The interview will be broadcast at 4:30 p.m. Pacific Time on Comcast Channel 15, and will be broadcast as streaming video at the same time at www.creatvsj.org.
Remember you can find past episodes of Financial Insider Weekly at www.financialinsiderweekly.com.
Tags: conversion, ira, roth